Statoil Said to Eye Deals as Government Loosens Control: Energy

A large deal would vault Statoil toward the first rank of global oil producers -- the so-called supermajors whose lineup has barely changed in a decade. Source: Statoil

Jan. 9 (Bloomberg) -- Statoil ASA is the giant of Norway’s
economy, accounting for almost 20 percent of Oslo’s benchmark
index. The state oil producer also looms large emotionally, as a
symbol of Norway’s resource wealth and engineering prowess.

It may soon get less Norwegian.

Encouraged by a newly elected conservative government
that’s considering reducing the state’s 67 percent stake,
Statoil is studying overseas acquisitions, according to people
familiar with the matter. It’s examining takeovers that would
allow it to diversify away from Norway while diluting the
state’s $51 billion shareholding, said the people, asking not to
be identified because the deliberations are private.

A large deal would vault Statoil toward the first rank of
global oil producers -- the so-called supermajors whose lineup
has barely changed in a decade. It would also present political
challenges in Norway as Prime Minister Erna Solberg’s new
government seeks to balance an international future for Statoil
with continued Norwegian control.

“Diluting the government could really give Statoil a lot
of firepower,” said Neill Morton, an analyst at Investec in
London. “In terms of acquisition opportunities, the focus is
clearly on upstream and outside of Norway.”

Tullow Oil Plc, a London-based oil producer focused on
Africa, is among potential targets on which Statoil is stepping
up analysis, one of the people said.

Anadarko Petroleum

In the past, the Norwegian company has also looked at deals
with rivals as large as Anadarko Petroleum Corp., EOG Resources
Inc. and BG Group Plc, two of the people said. However,
attempting to merge with companies of that size -- all have a
market value of more than $40 billion -- while keeping majority
state ownership would be difficult, they said.

Officials at Anadarko, Tullow, EOG and BG declined to
comment on prospects for a tie-up with Statoil.

Solberg’s Conservative Party and the Progress Party, whose
minority government has pledged to reduce taxes and the state’s
role in the economy, said during the 2013 campaign they may cut
the current stake in Statoil to as low as 51 percent. The
Stavanger-based company was built after the discovery of giant
North Sea fields in the 1970s. As those fields run dry, Norway’s
largest company must grow overseas or shrink.

“The new government is probably less interested in
political management of Statoil than the previous one,” said
Tore Johnsen, a finance professor at the Bergen-based Norwegian
School of Economics. “Even with new discoveries, the truth is
the North Sea is on the wane, so it’s internationally that
Statoil will want to use its human and capital resources.”

Open Market

The government would rather cut its stake as part of a
strategic transaction than simply sell shares on the open
market, the people said. That coincides with opinion within the
company, where strategy chief John Knight, a U.K. citizen, has
been driving consideration of major deals and has a receptive,
though cautious, boss in Chief Executive Officer Helge Lund, two
of the people said, citing their interactions with the managers.

“A possible strategic strengthening of Statoil using
equity is the right way to think about this,” said Harald
Norvik, Statoil CEO from 1988 to 1999. Selling shares for cash
would “weaken the opportunity to use equity as currency.

‘‘The initiative for such a move would come from Statoil,
not the government,’’ he said in an interview yesterday.

Lowest Debt

Diluting the government stake to 51 percent could allow the
issuance of more than $22 billion in new shares for use in a
takeover, at current prices. Statoil also has the lowest ratio
of net debt to earnings before interest, taxes, depreciation and
amortization among integrated European energy producers at about
0.25, according to Bloomberg data, giving the company plenty of
financing room.

The government has little use for the cash a direct sale of
its stake would generate. Norway has the biggest budget surplus
of any country with AAA credit rating and no net debt, meaning
any windfall would be directed to its $800 billion sovereign
wealth fund, itself a large investor in the shares of energy
companies including Royal Dutch Shell Plc.

Still, any dilution could present delicate political
problems, said the School of Economics’ Johnsen.

‘‘It would highlight the fact that Statoil is becoming less
and less Norwegian,” he said. “It’s a reality, but it may be
difficult to accept.”

International Production

The share of international production in Statoil’s total is
already forecast to grow to 44 percent in 2020 from 7 percent in
2001.

Determining the extent of Norwegian control after a deal
would be a key political concern. Without a parliamentary
majority, Solberg would need to convince at least one party
beyond Progress to go along with her plans. The opposition
Liberal Party has a “pragmatic” stance, deputy leader Ola
Elvestuen said.

“It’s completely unthinkable to imagine a merger that
would allow us to lose national control, meaning majority
ownership, a Norwegian CEO, and a Norwegian chairman of the
board,” said Ole Borten Moe, a Center Party member who served
as oil minister between 2011 and 2013.

Norway’s main opposition party, Labor, is opposed to any
reduction of the state’s stake.

To be sure, Statoil could also dilute the government by
raising equity for purposes other than a takeover, like building
out its activities in East Africa, the people said.

Major Deals

“The issue now isn’t access to resources,” said Teodor
Sveen Nilsen, an analyst at Swedbank First Securities. “They’ve
discovered a lot of resources over the last years -- it’s about
execution now.”

The oil and natural gas industry has seen many discussions
of major deals that never became reality. BP Plc and Shell, for
example, flirted with a tie-up in the mid-2000s, former BP CEO
John Browne said in his memoirs.

The Woodlands, Texas-based Anadarko has operations
throughout North America as well as in East Africa, while BG
Group, based outside London, has gas projects in Brazil and
Australia. Statoil considered a bid for BG after its shares
plunged more than 20 percent in 2012 amid production
difficulties, one of the people said.

Acquiring Anadarko, which has a market capitalization of
about $40 billion, or BG, at $75 billion, would stretch
Statoil’s financial capacity if the government stake must remain
above 51 percent. For that reason a smaller but still
substantial deal is more likely, the people said.

Smaller Targets

“It would be easier with smaller targets, for example
companies specialized on Africa, which is getting higher and
higher on Statoil’s agenda,” said Carl Christian Bachke, an
analyst with Nordea Markets.

In addition to Tullow, Edinburgh-based Cairn Energy Plc,
with operations in West Africa and Europe, could be such a
target, Bachke said. The company declined to comment.

Statoil has already made forays into North America through
takeovers, spending $4.5 billion to acquire Austin, Texas-based
Brigham Exploration Co. to add shale oil reserves. Meanwhile, it
sold offshore fields in Norway for more than $5 billion over the
past two years to Centrica Plc, Wintershall AG and OMV AG.